Question

Question 12 1 pts Yum! Brands just paid an annual dividend of $2.20 a share and is expected to increase that amount by 2.2 percent per year. What price should you expect to pay per share if the market rate of return for this type of security is 14 percent at the time of your purchase? $18.16 $19.47 $19.89 $20.20 Question 13 1 pts Home Depot currently pays an annual dividend of $2.00 per share and adheres to a dividend policy that aims to maintain a constant dividend growth rate over time. Today, the company announced that it will pay a dividend of $2.05 a share on its common stock next year. What will one share of this common stock be worth five years from now if the applicable discount rate is 10.9 percent? $27.61 $27.00 $21.28 $28.30

Answer 1

Q-12 Price of stock =Expected div./(r-g) =(2.2*1.022)/(14%-2.2%) =19.05

Price expected =19.05*(1+2.2%)=19.47

Q-13 Growth rate =(2.05-2.00)/2.00 =2.5%

Price of stock now =2.05/(10.9%-2.5%) =24.405

Price of stock after 5 years =24.405*(1+2.5)^5 =27.61